An exit at HDFC Bank without answers

0:00Hello folks, you're tuned into Fincharts Daily. In today's episode, we talk about the recent exit of HTFC Banks Chairman and why it's raising more questions and answers. Before we begin, here's a quick word from Team Ditto. Life has a way of surprising us and not always in a good way. Sometimes it's a sudden illness or an unexpected hospital visit that can shake up everything. In India, families still pay about 39% of medical expenses directly from their own pockets and just one hospital's take and wipe out years of savings. The easiest way to protect yourself is by getting a good health insurance plan. It's way cheaper than footing one huge bill. And if you're unaware where to start, book a free call with Ditto. No spam, just honest jargon free guidance, trusted by over 8 lakh people for their health and term insurance needs. The link is in the description. Now back to the story. HTFC Banks Chairman Atanu Chakraborti stepped down and what could have been just another

1:01high profile exit. But it wasn't the resignation that stood out. It was what he said on his way out. In his resignation, Chakraborti pointed to certain happenings and practices within the bank that over the last two years were not in line with his personal values and ethics. It was a carefully worded statement but one that raised more questions than it answered. And what made unusual was that there was no single revelation or headline scandal. And yet the former chairman's brief letter was enough to rattle investor confidence and send the bank's stock sharply lower. So what may have erupted at one of India's strongest private banks? You ask. Well, a chairman stepping down over values and ethics is in the kind of headline you see every day. Especially not from a bank that has spent decades questioning itself as the gold standard of Indian private banking. And stable almost boringly reliable. But when someone at that level exits like this, it tends to leave a question hanging in the air. Even if no one can quite name it yet. So based on what's emerged over the last few days since the chairman's exit, here are

2:03a few things that could possibly have stirred up HTC bank's management. For starters, there's a regulatory action from the Dubai financial services authority that had largely stayed under the radar for context within days of the resignation. Many senior executives at the bank's UAE operations were dismissed following an internal investigation. Apparently, they were involved in miscelling additional tier one bonds, that is, AT1, at HTC bank's UAE branches. A little sidebar here, AT1 bonds are a type of debt instrument issued by banks to strengthen their core capital, their riskier than traditional bonds. So banks have to offer high interest to reward investors who buy them. Logically, this happened between 2019 and 2022, when they convinced non-resident Indian customers to shift their foreign currency deposits from India to Bahrain by presenting these AT1 bonds as fixed majority products and safe alternatives to deposits, when in fact, they are high risk-perpetual bonds. This essentially means that investors don't get the principal back, but only receive

3:07annual interest payments. The risk, however, is that if the issuer's financial health deteriorates, it can permanently write down the bonds' face value to zero, causing investors to lose their entire investment, and that's exactly what happened. The bonds issued by Credit Suis were wiped out in 2023 when the bank collapsed and was absorbed by UBS, leaving investors with nothing. And the fallout was significant. The Dubai financial services authority had earlier barred HTC bank from onboarding new customers at its DIFC branch in Dubai, something that hadn't been publicly disclosed since the bank says that it was conducting internal investigations and probing whistleblower complaints over the past two years. MD and CEO Sachida Jagdishan acknowledged that there were areas where the leadership agreed to disagree. It was a rare admission for a bank known for projecting unified confidence, but that's only a recent case. Another possible trigger could be the alleged fraud at Mumbai's Lilawati Hospital. Next year, the Maheta family, which controls the Lilawati Kirtilal Maheta Medical Trust,

4:09filed an FIR against Jagdishan, along with a few current and former bank employees. The allegation was that they helped a former trustee, Chaitan Maheta's group, misappropriate the trust funds and gain control over it. The trust says it found evidence, including seized handwritten cash diary suggesting that around 14 crore rupees was misused by former trustees. Out of this, two crores was allegedly paid directly to Jagdishan. And this was in just any payment. The claim was a bribe from the Chaitan Maheta group to provide financial advice that helped the group tighten its grip over the trust and continue siphoning funds. There's also an accusation that he helped Harris the father of a current trustee, who is locked in a loan dispute with HTC bank. But the claims don't stop there. The trust also alleges that Jagdishan facilitated deposits of about 25 crore rupees of trust money into an HTC bank account without proper approvals or bought resolutions. On top of that, around 1.5 crore rupees was allegedly rooted as CSR funds to hospital staff to destroy or forge evidence.

5:11And as per their claims, Jagdishan and his family even received free medical treatment at Lila with the hospital. HTC bank however has firmly denied all these allegations. It says this is an attempt by the trustee target, its senior officials and distract from a separate issue. Some pending unpaid debt of over 65 crore rupees from splendor gems limited, which is linked to the trust. But there's not much to read into here as the case is still ongoing. Yet in the middle of all this, a report by money control adds another layer. It suggests that Chikroverti had shoes with two board level decisions. One was the reappointment of Jagdishan without a thorough review of his performance in his second term as MD and CEO, while the other was the proposed appointment of Jimmy Tata as executive director. After Bhavesh Zaviri's term ends in April, Tata, currently the bank's chief credit officer is one of the longest serving senior execs. But Chikroverti reportedly felt that 10-hour alone shouldn't guarantee a board seat. So yes, it seems these disagreements within top management may have slowly built up, eventually pushing things to a tipping point and possibly leading to Chikroverti's abrupt resignation.

6:17Of course, none of this has been officially linked to Chairman's exit, where only connecting the dots here, but taking together, it's hard to ignore the sense of friction beneath the surface. Whether around growth decisions, how products are sold, or how strictly the bank holds itself accountable when things go wrong. And yet, if you look at the official response, their tone has been largely reassuring. Interim Chairman K. Kimishti said that Chikroverti had not provided the board with specific details of his concerns. Even the RBI described HTC Bank as a domestically systemically important bank with sound financials, a professionally run board, and a competent management team. The Finance Ministry echoed this, calling it a strong institution with strong fundamentals. But that reassurance hasn't fully settled in ours. Investors were entirely convinced that instead of dismissing the concerns, the bank should have constituted a committee of independent directors to engage with Chikroverti directly and issue a more detailed public explanation. Which leaves things in a bit of a grey zone. But now, the picture remains incomplete and the outcome will depend on what's croutiny

7:18and investigation reveal in the upcoming days. Alright folks, I will see you in the next one.